Holiday Session Mixes Up Stocks | November 30th 2014

State of the Stock Market Analysis for the Week Ending November 30th, 2014 (Holiday Session Mixes Up Stocks 11-30-14)

Stocks closed out Friday’s shortened holiday session mixed, quiet and flat. By the looks of the numbers for the U.S. stock market on Friday, and by the looks of the numbers for the week, it might have seemed as though not much had happened in the global financial markets. OPEC’s Thanksgiving Day meeting was a big one, though, and while the U.S. stock market did not flinch much at all, global oil markets most certainly did. OPEC agreed to keep production levels where they are, which walloped oil prices. Light sweet crude oil prices fell by 10% on Friday to close at just above $66 per barrel; its lowest level in five years.

U.S. stocks held their ground despite OPEC, and for the week, the major indices posted gains of 0.1% for the Dow, 0.2% for the S&P 500 and 1.7% for the Nasdaq. The month of November turned out to have been a fairly good month in its own right, as the majors saw monthly returns of 2.5% for the Dow and the S&P 500 and a 3.5% gain for the Nasdaq. We are still at or near all-time highs for the Dow and S&P 500 and 14-year highs for the Nasdaq, so you can bet that the bulls are enjoying their turkey-fueled weekend of leftovers and a stock market that still looks fearless.

October’s global GDP worries now seem like a thing of the past, and the roughly 10% plunge and subsequent 10% rally in the S&P 500 seem like ancient history. November was a tame month for the stock market, and it did a great job in slowly ratcheting its way toward many new record highs. Volatility and fear subsided throughout the month, and at least until Thanksgiving Day, it looked as though it would be smooth sailing straight into Christmas and New Years Day. Thursday’s OPEC meeting threw a curve ball into the mix, and the jury is still out as to whether OPEC’s move might actually become a “global shock.”

Oil prices had been falling since June, and crude had declined by around 30% before OPEC’s Thursday meeting. OPEC recently found itself in a conundrum of “pay me now, or pay me later.” It had the choice of cutting production and spiking oil prices “pay me now,” or it had the longer term choice of letting prices fall. By letting prices fall, OPEC puts tremendous profit pressures on the entire U.S. oil shale and fracking boom, since it is expensive for domestic U.S. companies to produce the new “bonanza” of shale oil unless oil prices remain high. Rather than “pay me now,” OPEC appears to be willing to squeeze the rest of the world’s oil producers in order to “pay me (OPEC) later.”

Low prices can also cause energy companies to stop or postpone future oil exploration and development, so even though OPEC will lose money in the short term, it is strategically setting itself up to retain the role as “the big kid on the block” in the future. The oil shocks of the 1970s caused oil prices to dramatically spike way back then, and that brought in massive amounts of investment and exploration outside of OPEC’s control. It now seems as though OPEC is opting to keep oil prices low and squeeze out any existing or potential competitors. OPEC is playing hardball, and it is a huge concern as to where this new game ultimately leads.

Just having the price of all of the crude oil on the entire planet fall by 10% in a single day is mind-boggling. Seeing big integrated oil giants like Exxon Mobil (XOM) and Chevron (CVX) fall by 4% or 5% on Friday was astounding as well. Even more “head-scratching” are comments from some economists saying that the fall in oil prices is less “supply” related, and actually more the sign of an extensive global economic slowdown and a lack of demand. Once again, the “global GDP slowdown” fears from early October might be coming back home to roost. It is too early to tell if OPEC’s meeting unleashes a “global shock,” and hopefully it will not, but we will keep a close eye on this new development.

In the meantime, there will be no complaints among U.S. consumers at the gas pump, and the sub-three-dollar-per-gallon gas prices (nationwide average) will likely head lower soon. This should be great for the holiday shopping season, as well as consumer spending in general, but there are also other variables that can come into play. The yield on the 10-year Treasury fell to 2.19% onFriday, which shows a bit of global fear kicking in with a flight to safety and quality. Low interest rates are again good for consumers, but if global money is seeking safety, then maybe that could be worrisome for the global economy. Likewise, a strengthening U.S. dollar is great for buying imports, but it can weigh on the profits of U.S. multinationals.

There is never a dull moment on Wall Street, and after a “flat and quiet” month, we have some new issues to absorb. We are still in the “sweet spot” of the year for stocks, and with us basking in these all-time high levels for U.S. equities, not many bulls are complaining one bit. Enjoy the rest of the Thanksgiving holiday weekend, and try not to eat too much. The Gorilla is still smiling that he avoided shopping on Black Friday, and from the fights and brawls reported in the media, he has no plans to experience a Black Friday anytime soon. Again, the Gorilla wishes each and all a relaxing and restful weekend, and we will be back in action on Monday!